For inquiring minds is the cpi biased one reason is

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FOR INQUIRING MINDSIs the CPI biased?One reason is the fact that the CPI measures the cost of buying a given market basket. Yet, consumers typically alter the mix of goods and services they buy, reducing purchases of products that have become relatively more expensive and increasing purchases of products that have become relatively cheaper. The second reason arises from innovation. By widening the range of consumer choice, innovation makes a given amount of money worth more.
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U.S. CPI Trend27
Other Price MeasuresA similar index to CPI for goods purchased by firms is the producer price index. Economists also use the GDP deflator, which measures the price level by calculating the ratio of nominal GDP to real GDP. The GDP deflatorfor a given year is 100 times the ratio of nominal GDP to real GDP in that year.28
Measures of Inflation: Trend29
ECONOMICS IN ACTIONIndexing to the CPIThe CPI has a direct and immediate impact on millions of Americans. The reason is that many payments are tied, or “indexed,” to the CPI—the amount paid rises or falls when the CPI rises or falls.Today, 54 million people receive checks from Social Security. The amount of an individual’s check is determined by a formula that reflects his or her previous payments into the system, as well as other factors.
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ECONOMICS IN ACTIONIndexing to the CPIIn addition, all Social Security payments are adjusted each year to offset any increase in consumer prices over the previous year. The CPI is used to calculate the official estimate of the inflation rate used to adjust these payments yearly.
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Summary1.Economists keep track of the flows of money between sectors with the national income and product accounts, national accounts. Households earn income via the factor markets from wages. Disposable income is allocated to consumer spending (C) and private savings. Via the financial markets, private savings and foreign lending are channeled to investment spending (I), government borrowing, and foreign borrowing. Government purchases of goods and services (G) are paid for by tax revenues and any government borrowing. Exports (X) generate an inflow of funds into the country from the rest of the world, but imports (IM) lead to an outflow of funds to the rest of the world.
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Summary2.Gross domestic product, or GDP, measures the value of all final goods and services produced in the economy. It does not include the value of intermediate goods and services, but it does include inventories and net exports (X IM). It can be calculated in three ways: add up the value added by all producers; add up all spending on domestically produced final goods and services (GDP = C + I + G + X IM); or add up all the income paid by domestic firms to factors of production. These three methods are equivalent.

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